Want to pay your mortgage off? Not so fast. While it might seem like the logical thing to do, there are many different things that you should take into consideration before jumping the gun on that. The standard mortgage has a thirty year term tied to it. With payments spread that far out, most people are able to afford a standard mortgage. Sometimes, when homeowners have some extra cash, they start to hunk about if they should heighten their payments in order to pay it off sooner. Before running for your checkbook, here are some things to carefully think about before putting pen to paper.
Perhaps you actually need the mortgage for your taxes. If you work for yourself, your mortgage payment is a huge tax write-off that you might need. When you deduct that interest, you can save a few grand a year from your tax liabilities. You’ll lose this advantage if you pay your mortgage off.
You might think you can handle the higher payment, but can you really? Just because you have the ability financially to pay it off doesn’t mean you should. Consider this…you may have the cash more each month, but how much does that leave you for the rest of your financial responsibilities each month? If you have $700 left over at the end of each month, and use it to pay more toward your mortgage, for example, what will you live on?
Also, if you’re re-financing, other fees come along with that. Can you afford other fees on top of a higher mortgage payment? When you lower your mortgage term, the payment is going to increase by a few hundred dollars.
Next, you must look at your retirement. How is your account looking? If you have an extra few hundred per month, sending some of it toward your mortgage could be beneficial. This is only true if your retirement savings account is in good health. If you’ve not even begun saving for retirement, you should put off paying more toward your mortgage for now, and spend more time
Next, you must look at your retirement. How is your account looking? If you have an extra few hundred per month, sending some of it toward your mortgage could be beneficial. This is only true if your retirement savings account is in good health. If you’ve not even begun saving for retirement, you should put off paying more toward your mortgage for now, and spend more time putting money into your retirement.
And, what about your emergency fund? How is that fund looking? If you have nothing in your savings account, you need to accumulate one. Paying off your mortgage early should be the last of your worries. You never want to be in a situation where you don’t have extra money on hand. If you are already at that point, it’s time to start putting any leftover money at the end of each month into that account. Otherwise, you’ll end up in credit card debt.
Is your retirement day near? If you aren’t planning to retire any time soon, you don’t need to worry about paying off your whole mortgage right now. however, if you’re in your 60s, paying off your last mortgage payment should be a priority at the moment. You don’t want to retire with a mortgage.
Lastly, realize that even if you pay your mortgage off early, you’ll have other fees. You still have to pay yearly taxes and monthly insurance premiums on the house, as well as utilities. So you’ll still need a source of income.
For more information, check out this article on How Big Is Your Emergency Fund?, and watch the video on Whether or Not You Should Pay Your House Off Early.